By Tiernan Ray

On the conference call following the report, CEO Larry Ellison, and his co-COOs Safra Catz and Mark Hurd, said that a decline of 2% in new license revenue and cloud computing software was a product of not sufficiently closing deals, in part because of having added 4,000 sales people in the last year and a half.

Said Hurd,

We have increased the sales force dramatically, and we feel great about our coverage, and that really shows up first in the pipeline performance that we got. Our pipeline is up significantly. We don’t give you a number, because frankly I don’t want you to give me a comparison every quarter with the pipe, but it is up materially. The issue for us is simply conversion. While listen, you can come up and anybody can come up with all kinds of factors.There’s always something going on around the world at any given time, and for us, we feel good about our ability to execute through it. In this case, as I said, it really was just the conversion rate against the context of a materially higher pipeline.

Estimates on the Street are going down today, and there are at least two ratings cuts, from CLSA Asia-Pacific Markets and Evercore Partners. Both bull and bear seem in agreement that no matter how good or bad the results were, Oracle is seeing the effect of greater competition from cloudcomputing software vendors, such as Workday (WDAY) or Salesforce.com (CRM).

Rick Sherlund, Nomura Equity Research: Reiterates a Buy rating and a $39 price target. “Tough Q3 follows strong Q2. Not sure we have seen too many misses in Q4 historically given the compensation incentives for salespeople. Oracle’s organic cc growth had been modest for the past 2 years, reflecting a loss of market share in applications as it transitions to the new Fusion family of products and the market’s secular shift to SaaS based solutions. Oracle’s database and infrastructure business is mature and is being repurposed we think to be better positioned for the cloud. This likely involves enabling customers to adopt an Oracle infrastructure based private cloud environment and scale out to an Oracle hybrid cloud for essentially unlimited compute capacity on an as needed basis to meet peak demand. This may be particularly useful for big data analysis, where massively parallel compute capacity is likely a growing market opportunity. We are more positive on Oracle’s ability to address this infrastructure market opportunity than we are in the near-term applications opportunity. Oracle’s Fusion applications are mostly in its core HR, which is where most of Fusion’s traction is. Fusion financials are probably still a year or two from being ready for prime time, just as with Workday.”

Brian Schwartz, Oppenheimer & Co.: Reiterates an Outperform rating a $40 price target. “Oracle reported soft 3Q results owing to poor sales execution, hardware product transitions, and sequestration timing. We believe something more secular is occurring as cloud computing increasingly entices CIOs to refresh their legacy IT systems with cloud services rather than infrastructure. Additionally, software purchasing is becoming more decentralized with decision-making power shifting away from IT and weakening the selling advantage as a “one-shop supplier.” These trends dampen big-ticket on-premise software purchasing and remain a headwind for the infrastructure vendors. Nevertheless, Oracle’s cloud-computing product strategy (M&A and innovations) should put it in good position to monetize on its large installed base, and along with positive 4Q seasonality, makes us think its execution issues are unlikely to linger near term.” Schwartz cut his fiscal 2013 estimate to $37.4 billion in revenue from $38.1 billion, while maintaining a $2.69 EPS estimate.

Kirk Materne, Evercore Partners: Cuts the stock to Equal Weight from Overweight, and projects “downside risk” to $31 or $32. “While we are loath to downgrade post earnings, we see limited upside for the shares (even after accounting for the roughly 8% pullback this evening) over the next 6-9 months given the lack of organic license growth and a second license miss in five quarters. We stuck with ORCL following its last sales execution miss, but with shares +38% since 12/21/11 (vs. +24% for the S&P), we see a more limited risk/reward opportunity this time around. Clearly, Oracle could (and likely will) see a snap back in demand in its seasonally strong 4Q, but we expect any 4Q rally is likely to be sold into given that the sales execution choppiness is likely to result in more conservative guidance going forward, especially for 1Q14.” Materne cut his estimate for this year to $10.58 billion in revenue and $2.69 per share from a prior $10.89 billion and $2.71. For next year, he sees $11.2 billion and $2.94, down from a prior $11.7 billion and $2.99 per share.

Ed Maguire, CLSA Asia-Pacific Markets: Cuts his rating to Underperform from Outperform, and cuts his price target to $35 from $38. “It’s not just about the 3Q miss (second in six quarters) – Oracle’s business model is struggling to achieve growth ambitions as increasingly disruptive forces array on multiple fronts. Management acknowledges a fundamental issue: that its cloud offerings are too small to offset the challenges navigating its portfolio through a transition to the cloud’s economic model. Yes, sales execution is largely at fault for the 3Q miss, but we believe SaaS, open source and cloud-based architectures will increasingly challenge growth, pricing power and vendor lock-in […] Again management pushed expectations for a bottom in hardware into 1QFY14. We’re not so sure – the hardware business remains prone to commoditizing forces both from competition and as workloads move to the cloud.” Maguire cut his fiscal 2013 estimate to $37.4 billion from $38.2 billion, while maintaining a $2.70 per share EPS estimate. For 2014, he goes to $38.38 billion from $39.72 billion.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.